Wednesday, July 31, 2013

EE Goes to the Movies Ep. 1: Empire of the Sun

One of the legendary classic papers in economics is R.A. Radford's 1945 Economica piece "The Economic Organisation of a P.O.W. Camp" available here. As an object lesson in the value generated simply by trading an initial endowment, this piece is at once brilliant in its simplicity and delightful in its replicability. Some of the more engaging Principles of Economics professors out there should cop to a simple little classroom experiment where you randomly distribute randomly selected tchotchkes (double the randomness, double the fun!) to a classroom full of students. Have them subjectively rate their endowment on a scale of 1-10, tally the scores, then give them 15 minutes to trade (there are little flourishes you can do to this depending on what you want to emphasize) and repeat the assessment phase. In almost every attempt, the post-trading pseudo-GCP (gross classroom product) will be higher after the trading session.

Now, I don't know how many econ courses Spielberg slogged through at California State, but it seems at least a little bit unlikely that he's sat down with Radford for a cozy evening of comparative economic history.

Then again, the paper was based on what Raford himself actually witnessed in a prisoner camp, and spontaneous market formation is hardly rare. Be it marbles, Pogs, Pokemon, Barbie accessories, CIA terrorist playing cards, or thermal exhaust schematics for the Death Star, people require little prompting to begin trading when it's to their advantage.

Regrettably, I can't find a quickly available clip, but this tendency was nicely presented in Spielberg's 1987 film Empire of the Sun. A young Batman, before he even donned a Gatsby (yes, that's the proper term for a Newsboy Cap) and began prancing around the Disney lot singing about the exploitation of child labor, found himself a young ward in the custody of Japanese jailers in wartime China. While there, he busied himself as a gofer for the camp's mancgere, shuttling a little of this, a little of that, buying cheap and selling dear.

Here's the question (and I again apologize for not having a clip to share): do you get the sense from watching the film that the business of POW camp trader is euvoluntary? It's not that easy a question, is it? In an absolute sense, everyone in the camp (perhaps even the guards) has a lousy BATNA, but since the prisoners all more or less share the same grim fate, there's not a lot of disparity there. That is, until the gains from trade start to accrue to the entrepreneur.

Even if everyone is better off in the camp as a result of a functioning market, is it still okay to begrudge the modest wealth accumulated by the shopkeep? What's your opinion? How does Spielberg want you to think about it? Does the silver screen depiction mirror commonplace moral intuitions? Does it attempt to insert its own interpretations into the minds of the audience? How successful do you think it is?

Under what conditions do POW camp black markets stop providing net benefit and begin being truly predatory?

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Do you have suggestions on where we could find more examples of this phenomenon?